Interaction Between Inflation and Unemployment

A SPECTER FROM the Depression Thirties—mass unemployment—will be lurking in the shadows of the “economic summit,” the gathering of some 600 experts and other representatives of various phases of American life whom President Ford has summoned to help him solve the most serious domestic problem of his newborn administration. The main topic of the summit, to be held in Washington, Sept. 27–28, will be inflation—what Ford, at his Aug. 28 press conference, called “Public Enemy No. 1.” But for many Americans the threat of a shrinking job market presents an even more fearsome prospect than rising prices.

The task before the summit is formidable. For the Ford administration must devise a policy and a set of actions that will leash back a runaway inflation without at the same time pushing an expected recession into a job-destroying slide. A number of familiar anti-inflationary devices will be considered, most of them looking to a slowing down of economic growth that inevitably results in a shrinkage of jobs. President Ford favors conservative approaches similar to those taken by previous Republican administrations: balancing of the budget to be achieved by cutting government spending, a tight money policy, and hold-downs of wages and prices, hopefully by voluntary means. But he seems willing to listen to other voices. A pre-summit meeting of 28 economists, over which he presided on Sept. 5, included participants of liberal views who had served as advisers to Democratic administrations.

Federal Reserve Board Chairman Arthur F. Burns is among those who believe budget restraint is the main key to the inflation-recession puzzle. Shortly before he resigned Aug. 9, President Nixon had promised to cut the federal budget from $305 billion to $300 billion. Soon after he became President, Ford promised to spend even less than $300 billion. Burns has since suggested that the budget could be cut back to $295 billion. If this were done, he said, “the stock market…[and] the bond market would revive promptly, short-term interest rates would move down promptly…and forces would be released in the private sector to create more jobs. “ President Ford apparently agrees. “If we take care of inflation…I think most of our other domestic…problems will be solved,” Ford said at the Aug. 28 news conference. “We won't have high unemployment. We'll have ample job opportunities.”